FedNow eyes cross-border enhancements | Payments Dive


The Federal Reserve’s new FedNow instant payments system starting later this year may eventually have cross-border capabilities, a Federal Reserve official said last week.

While that real-time system will only be available in the U.S. market at first, Fed officials are already considering ways the technology can be upgraded, said Nick Stanescu, a Fed senior vice president overseeing FedNow.

FedNow officials are starting to “think ahead in terms of how this could support instant payments, not just in the U.S., but also for cross-border types of use cases,” Stanescu said during a FedNow town hall webcast on March 23 that attracted about 900 viewers. “July is just the beginning.”

The new real-time system will be the most significant upgrade to the U.S. payments system since automated clearing house payments became available in the 1970s. FedNow will operate 24 hours a day, seven days a week and on holidays, allowing for almost instantaneous settlement of transactions.

Enabling cross-border transactions is also a goal of FedNow’s real-time rival operated by the country’s biggest banks, namely the RTP network. The Clearing House, which is owned by about 20 big banks, launched the RTP network in 2017 and has been expanding its services ever since. 

Cross-border is ‘holy grail’ of real-time payments

TCH began exploring a cross-border offering with the pan-European payment provider EBA Clearing and the international financial messaging company Swift last year. They developed a link between their networks that was operationally feasible, but the legal and administrative aspects of the system haven’t been worked out yet, said Jim Colassano, senior vice president of TCH’s product development and strategy. 

“We’re trying to push it as quickly as possible because this is one area where if you talk to the market, if there’s one thing they would like to see coming out of all the instant payment work that everybody is doing, both for us and FedNow, it’s the ability to make cross-border payments instantaneously,” Colassano said this week in an interview. “That is the holy grail so we do want to get there as quickly as possible.”

That said, Colassano wouldn’t comment on exactly when TCH and the two partners would embark on a full pilot of their cross-border effort.

FedNow plans for alias directory

FedNow officials are planning for other enhancements as well. The new nationwide real-time payments system will be able to accommodate evolving technologies, release new features, pursue system updates and undertake “periodic, large-scale enhancements,” Stanescu explained during the hour-long webcast. Financial institutions participating in the FedNow system will be able to choose whether to adopt additional features, he said.

In particular, FedNow planners are focused on security aspects. “We’re very much focused on those enhancements that are supporting the safety of the system,” Stanescu said.

Specifically, FedNow officials have received feedback that some “high-demand” FedNow use cases would require the ability to originate payments on the basis of a phone number or email identity, what the industry refers to as an “alias” that doesn’t reveal other personal information. 

To accommodate that interest, the central bank is reviewing the development of a FedNow “alias directory” for financial institutions so they could manage accounts in such an environment. The only extensive alias directory that exists today is offered by the peer-to-peer electronic payment system Zelle, Colassano said. Zelle is operated by the company Early Warning Services, which is owned by seven big U.S. banks.

“We received strong feedback from financial institutions, and from other organizations, that an alias directory should be considered as part of the service,” Stanescu said. “So, looking ahead, post-July, we are exploring various approaches to supporting alias-based payments natively in a future release of the FedNow service.”


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